Investors increased estimates for the drop in Associated
British Foods' sugar results after the group confirmed production setbacks in Spain
and the UK, and a dent to its Chinese operations from lower prices.

Associated British Foods' trading statement for the first
quarter of its financial year was, overall, well received by investors, in
including a 25% leap in sales at its Primark clothes retail operations, where
margins were also higher thanks to "lower cotton prices".

The group, whose empire stretches from Twinings tea to the UK's
Frontier Agriculture grain trading joint venture with Cargill, said that its group
performance for the 16 weeks to January 5 had been "ahead of expectations", and
said it was now expecting a rise in operating profits for the full year to
September.

ABF shares jumped to a record high of 1676p in London, before easing to close at 1606p, a gain of 3.2% on the
day.

UK setbacks

However, the rise in group profit expectations defied some
deterioration in prospects in sugar, including in the key UK operations, set
for a drop in full-year profits "as a consequence of the lower production,
higher beet costs and a weaker euro".

The UK had seen lower beet yields, and a drop in sugar
content in the crop, thanks to poor weather which brought the UK its wettest
summer in a century last year, with England suffering its wettest year on
record.

"As a consequence the UK campaign started later and will
have lower factory throughputs to allow for a slower filtration process," said
ABF, which processes the entire UK beet crop, and estimated its sugar output in
the country at 1.13m tonnes, a 14.4% drop year on year.

The lower UK beet yields were also set to constrain volumes
of beet-based feed, as sold by ABF's agriculture division.

Extra cane use

Profits in Spain will be lower too, after heavy rains, which
followed the 2011-12 drought, delayed plantings in the south of the country,
and are "expected to reduce the size of the crop".

While ABF said it expected its sugar output to hit quota
levels, profits would be hit by higher beet costs resulting from a lower
harvest, and by use of a higher proportion of cane as a raw material, which
offers the operations lower margins.

In China, profits will be "well below" last year's levels, thanks
to "much lower" sugar prices following the country's strong beet and cane
harvests, which were boosted by higher plantings and yields.

South Africa-based Illovo Sugar remained the one major sugar
operation set for higher profits, boosted by higher can yields and sugar
content in South Africa, and an "extended campaign" in Zambia.

Broker reaction

The data prompted Panmure Gordon analyst Graham Jones to cut
by £10m to £445m his estimate for ABF's sugar operating profits in the current financial
year, "with China pricing looking quite difficult at the moment".

However, the broker hiked to 1670p, from 1450p, its target
price for ABF shares, which it said "should be a core holding in the sector".

Shore Capital, while restating a "buy" rating in ABF stock,
flagged the "more mellow news from sugar", and cut its estimate for sugar
operating profits to £440m.

In the year to September 2012, ABF's sugar operating profits
reached £510m.